2017 (5) TMI 1693 - HC - Income Tax

Penalty levied u/s. 271D - violation of provisions of Section 269SS - whether transfer by way of book entries was bonafide and was not to evade taxes specifically when accordingly to section 269SS deposit/loan of money cannot be accepted otherwise then by an account payee cheque/draft? - ITAT deleted penalty - HELD THAT - Taking into consideration the observations made by the CIT(A) and the Tribunal, we are are of the considered opinion that Section 269SS of the Income Tax Act, was introduced in statute and taking into consideration the applicability of the provisions, the Tribunal has discussed liability recorded in the books of account by way of journal entries i.e. crediting the amount of party to whom monies payable and debiting the account of a party from whom monies are receivable in the books of account is in contravention of provisions of Section 269T of the Act but in that case also the penalty was held to be not leviable for the reason that transaction was bona fide and was not to evade taxes. In assessee s case also, the transaction is bonafide and it was not to evade taxes. No infirmity in the order of the ld. CIT (A) which is sustained on this issue. Thus the solitary ground of the Revenue is dismissed.

Summary

Issues:
Challenge to Tribunal's judgment and order regarding penalty under sections 271D and 269SS.

Analysis:
1. The appellant challenged the Tribunal's decision upholding the penalty under section 271D for accepting loans in violation of section 269SS. The substantial questions of law framed by the department questioned the Tribunal's justification for deleting the penalty. The CIT(A) imposed the penalty based on the violation of section 269SS, emphasizing the need to prevent unaccounted money and clarifying that section 269SS does not apply to journal entries in the books of accounts. The Tribunal considered the provisions of section 269SS and the violation by the assessee, ultimately concluding that the transaction was bonafide and not to evade taxes, aligning with previous case law.

2. The Tribunal's detailed analysis of section 269SS highlighted that it applies to transactions where loans or deposits are accepted without account payee cheques or drafts. The Tribunal referenced case law to support the view that even if journal entries contravene section 269T, penalties may not be levied if the transaction is bonafide and not for tax evasion purposes. In this case, the Tribunal found no infirmity in the CIT(A)'s order, dismissing the Revenue's grounds and upholding the decision to delete the penalty under section 271D.

3. The Tribunal's decision was based on a thorough examination of the provisions of section 269SS and the specific circumstances of the case. By considering the bonafide nature of the transaction and aligning with established case law principles, the Tribunal concluded that the penalty under section 271D was not justified. The appeal was deemed meritless and dismissed accordingly, affirming the Tribunal's decision and the deletion of the penalty.